Reopening Notices Against Struck-Off Company Quashed; Matter Remanded to Await NCLT Restoration.

Reopening Notices Against Struck-Off Company Quashed; Matter Remanded to Await NCLT Restoration.

Issue:

Whether reopening notices, assessment orders, and demand notices issued under Sections 148 and 147 of the Income-tax Act, 1961, against a company whose name has been struck off from the Register of Companies, are valid, especially when the Income-tax Department itself has filed a petition before the National Company Law Tribunal (NCLT) for the company’s restoration.

Facts:

For assessment years 2016-17 and 2017-18, the assessee-company was struck off from the Register of Companies. Despite this, the Assessing Officer (AO) issued reopening notices against the assessee, which were followed by assessment orders and demand notices. The assessee contended that at the time of issuance of these impugned notices/orders, the company was inoperative and, therefore, unaware of them. Crucially, it was noted that the revenue department itself had filed a Company Petition before the NCLT for the restoration of the assessee-company in the Register maintained by the Registrar of Companies.

Decision:

In favor of the assessee: The impugned notices, assessment orders, and demand notices were quashed. The case was remanded back to the Assessing Officer to await the final order to be passed by the NCLT regarding the restoration of the company.

Key Takeaways:

• Legal Status of Struck-Off Companies: When a company is struck off from the Register of Companies, it ceases to exist as a legal entity, though its liabilities might continue. Generally, legal proceedings cannot be initiated against a non-existent entity. This principle is a cornerstone of corporate law.
• Impact on Income Tax Proceedings: Courts have consistently held that reassessment proceedings, including the issuance of notices under Section 148 and subsequent assessment orders, cannot be validly initiated or completed against a company that has been struck off or is non-existent at the time of such proceedings. Such actions are considered to be against a “dead person” in the eyes of the law, rendering the entire exercise without jurisdiction.
• Effect of NCLT Restoration (Section 252 of Companies Act, 2013): The Companies Act, 2013, particularly Section 252, allows for the restoration of a struck-off company by the NCLT. If a company’s name is restored, it is typically deemed to have been in existence as if its name had never been struck off. This restoration has retrospective effect.
• Department’s Own Action as Evidence: The fact that the revenue department itself moved the NCLT for the company’s restoration implicitly acknowledges that the company was indeed struck off and its legal existence was in question. This strengthens the assessee’s argument that proceedings against a non-existent entity were invalid.
• Remand Pending Restoration: The decision to quash the orders and remand the case to await the NCLT’s final order is a pragmatic approach. It acknowledges the legal reality of the company’s non-existence at the time of the impugned actions while allowing the revenue to proceed with assessment once the company’s legal status is regularized by the NCLT’s restoration order. This ensures that the revenue’s potential claim is not permanently lost but is put on hold until the corporate entity is revived.